It is common practice for employers to offer departing employees, who are being terminated without cause, a separation package in exchange for a signed release from liability. But if the employee rejects the package, the employer may not be allowed to rely on the offer during any subsequent litigation.
The Case
In Ramos v Hewlett-Packard (Canada) Co, the employee was terminated without cause pursuant to the company’s workforce reduction program. The company notified the employee of her termination by letter, and offered her a separation package in the same letter in exchange for a release. The employee refused the separation package, and instead started litigation.
In its defence, the company made reference to the fact that it had offered the employee a “reasonable separation package”, and also referenced the dollar amount it had offered her. The employee brought a motion to strike all references to the separation package from the employer’s defence.
The Law
The Court found that the offer had been made implicitly “without prejudice”, meaning that it was intended by the employer to remain confidential when it was made. The fact that the employer had not labeled the letter “without prejudice” was not determinative of the question. Generally, where a settlement offer is made without prejudice to avoid litigation and “buy peace”, it should not be referenced by either party during the litigation.
In arriving at its decision, the Court noted that the offer was for an “enhanced” severance package, and that there was an element of compromise in the offer: an increased amount of severance in exchange for the employee signing a final release and indemnity agreement. The letter was written to avoid litigation, and the final release and indemnity agreement was integral to the offer. The release purported to discharge the employer from all causes of action the employee had or “may hereinafter have”, and contained a no admission of liability clause. Both the release and the letter itself provided that they were to be kept confidential.
The Takeaway
It often makes sense for employers to offer separation packages to departing employees in exchange for a release. By paying more than the minimum legally required amounts as consideration, employers can eliminate the uncertainty of litigation and effectively “buy peace”.
Despite the decision in this case, employers should be aware of a notable exception to the rule that such offers are confidential. Where an employer makes such a settlement offer, then subsequently argues that the employee was terminated for just cause, the courts may permit the employee to raise the fact of the offer to show the employer waived cause or as evidence that it had none. As such, it may be prudent to seek advice from an employment lawyer before making a settlement offer, especially if you believe you may have just cause to dismiss an employee.
